U.S., Germany continue to ‘agree to disagree’ on ways to spur global growth

A bilateral meeting between Treasury Secretary Jacob Lew and German Finance Minister Wolfgang Schaeuble Wednesday showed the two countries continuing “to agree to disagree” about ways to help the struggling euro-zone economy, experts said.

Since last fall, the Obama White House has ramped up efforts to publicly cajole Germany into boosting domestic demand and cut its trade surplus as a way to spur growth in the region and help the global economy.

To be fair, the U.S. has not been alone in this quest, as the International Monetary Fund and the European Union have made similar calls, analysts said.

But Germany doesn’t see it this way, as Schaeuble emphasized after his meeting with Lew today.

Schaeuble told reporters after the meeting that a German trade deficit would not help the U.S. economy.

Germany views its trade surplus as a sign of its economic prowess, and doesn’t see how handcuffing itself would help matters, said Marc Chandler, a senior vice president at Brown Brothers Harriman in New York.

Benn Steil, a senior fellow at the Council of Foreign Relations, said the Obama administration has made a mistake by taking Germany to task publicly.

“I think the approach the U.S. is taking is unhelpful,” Steil said. He said the U.S. would bristle at international calls for a change to its domestic economic policy.

“Why we should expect the Germans to be more receptive to public pressure is beyond me,” he added.

Steil said he generally agreed with Lew’s position that a boost in German domestic demand would assist the continued economic adjustment to the crisis in the peripheral countries of Europe.

Stronger growth in Europe is essential because, despite a lot of happy talk, the crisis in the region remains a threat to the U.S. recovery, experts said.

For instance, an improvement in Greece’s budget outlook may make the country actually more likely to default this year, Steil said in a recent blog post.

Greek officials have been touting that the country has a budget surplus excluding its interest payments on outstanding debt. This means that Greece can fund its ongoing expenditures without needing to borrow more money.

As a result, the Greek government has far less incentive to pay its creditors once it no longer needs to borrow from them to keep the economy running, Steil said.

“It would be extraordinary if Greece makes it through the next couple of years without a significant restructuring,” Steil said.

Those talks in the past have caused significant turmoil in global financial markets.

Yields on other stressed euro-zone countries will bear the brunt of any contentious talks between Greece and its official sector lenders, Steil noted.